I need not describe here the methods of the bankers’ clearing house, how each day the cheques are cleared, and how each bank at the close of each day finds out how it stands in relation to the other banks. Debits are settled, not by a direct transfer of cash, but by drawing a cheque upon the Bank of England, just as an ordinary individual redeems his liability by handing to his creditor a draft on his bank. If they both bank at the same bank the necessary adjustments are made in the books of that bank. The aggregate deposits of the bank are unaffected, and the reserve is unaffected. All the joint stock banks, then, have accounts with the Bank of England, and the deposits of the Bank of England include reserves of the joint stock banks. The Bank of England pays no interest on its deposits. Let us now analyse a Bank of England return, which we may call a Bank of England balance sheet. The following return is a post-war return, issued some months after the outbreak of the war:-- BANK OF ENGLAND. ISSUE DEPARTMENT. £ | £ Notes issued 86,802,605 | Government debt 11,015,100 | Other securities 7,434,900 | Gold coin and bullion 68,352,605 | Silver bullion ---------- | ---------- 86,802,605 | 86,802,605 ========== | ========== BANKING DEPARTMENT. £ | £ Proprietors’ capital 14,553,000 | Government securities 21,824,358 Rest 3,499,722 | Other securities 108,836,570 Public deposits 47,393,479 | Notes 52,098,065 Other deposits 117,593,833 | Gold and silver coin 813,512 Seven day and other | bills 32,471 | ----------- | ----------- 183,072,505 | 183,072,505 =========== | =========== We must leave out of consideration for the present the Issue Department. This is quite distinct from the Banking Department, and so far as the Banking Department is concerned, its working is as independent as though it were merely a Treasury Office in Whitehall. The Proprietors’ Capital explains itself. It represents the amount of capital subscribed by the shareholders. The Rest may be regarded as the Bank’s accumulated profits, and ordinary reserve fund. It is the fund into which the profits flow and the funds out of which the dividends are paid. It is not allowed, however, to run below £3,000,000.